Nickel operators face new chaos due to LME failures

(Bloomberg) — The London Metal Exchange (LME) nickel market, which became the focus of global attention due to an unprecedented compression of short positions last week, was again paralyzed on Thursday due to problems.

The start of the second trading day after a one-week suspension was delayed until 8:45 a.m. after a series of problems affected the LME's electronic system. First, brokers found that sell orders at the lower limit of 8% below Wednesday's closing price were being rejected, after the LME expanded the trading band the previous day.

Then, three trades appeared to take place at that price, but four minutes before the market opened. Finally, the LME informed brokers that trading would not restart until 8:45 a.m. and canceled the previous three transactions. When the market finally opened, futures fell to the daily limit of 8% to $41,945 per ton. But only two operations had taken place at 10:00 a.m.

The chaotic start of the session increases the embarrassment in the LME, as it seeks to restore order in the market that sets the global prices of one of the most important metals in the world. The nickel crisis has provoked angry criticism of the stock market for its handling of the situation, both by experienced operators in the metals markets and general investors, and several have said that they will no longer be listed on the market.

“Credibility is quickly slipping out of hand,” said Keith Wildie, head of negotiations at Romco Metals, on the phone from London. “It's eroding very quickly.”

In less than two weeks, traders have had to deal with an unprecedented price increase that led to massive margin calls, a week-long suspension, billions of dollars in cancelled trades, and now repeated failures in LME's attempts to reopen the market.

The LME briefly resumed nickel e-commerce on Wednesday morning, but was forced to stop it due to a technical failure that allowed prices to fall below the 5% lower limit. It reopened in the afternoon, but there was a gulf between supply and demand for most of the day, leading to highly illiquid trading conditions at the global price benchmark for metal used in stainless steel and electric vehicle batteries.

The LME on Thursday extended the cap of the initial reopening level of 5% for nickel to 8%, in a bid to “further help the market discover the real market price”. However, trade remained stagnant in the middle of the morning, with no one willing to buy at the lower limit level.

The latest price drop brings LME prices a little closer to the value of futures in Shanghai, which continued trading during the London suspension and fell again on Thursday. It is also another indication that the contraction of short positions that has taken over the nickel market may be decreasing. Prices soared 250% in just over 24 hours, as the main nickel producer, Tsingshan Group Holding Co., struggled to pay margin calls last week in its large short nickel position.

While e-commerce has faced technical problems, the exchange is still operating its large phone-based market, which tends to be used by banks, brokerages and institutional customers who need to carry out large and complex transactions. Its open floor, “the Ring”, also remains open.

Original Note:

Nickel Traders Awake to Fresh Mayhem as LME Glitches Again (2)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.